STERLING BANCORP - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - STERLING BANCORP	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - STERLING BANCORP	ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - STERLING BANCORP	ex32_1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to __________

Commission File Number: 0-25233

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)

Delaware		80-0091851
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer ID No.)

400 Rella Boulevard, Montebello, New York		10901
(Address of Principal Executive Office)		(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer o

Smaller Reporting Company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Classes of Common Stock		Shares Outstanding as of May 2, 2011

	$0.01 per share		38,035,034

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
QUARTERLY PERIOD ENDED MARCH 31, 2011

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Statements of Financial Condition (unaudited) at March 31, 2011 and September 30, 2010	3
	Consolidated Statements of Income (unaudited) for the Three Months and Six Months Ended March 31, 2011 and March 31, 2010	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Six Months Ended March 31, 2011	5
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2011 and 2010	6
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months and Six Months Ended March 31, 2011 and 2010	8
	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1.A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	(Removed and reserved).	42

Item 5.	Other Information	42

Item 6.	Exhibits	43
	Signatures	44

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(In thousands, except share data)

	March 31,			September 30,
	2011			2010
ASSETS
Cash and due from banks	$	72,670		$	90,872
Securities (note 6) (including $608,279 and $719,172 pledged as collateral for borrowings and deposits at March 31, 2011 and September 30, 2010 respectively)
Available for Sale		833,179			901,012
Held to maturity, at amortized cost (fair value of $29,203 and $35,062 at March 31, 2011 and September 30, 2010, respectively)		28,054			33,848
Total securities		861,233			934,860
Loans held for sale		—			5,890
Loans (notes 3 and 4):
Gross loans		1,684,827			1,701,541
Allowance for loan losses		(30,130	)		(30,843	)
Total loans, net		1,654,697			1,670,698
Federal Home Loan Bank (“FHLB”) stock, at cost		18,179			19,572
Accrued interest receivable		11,345			11,069
Premises and equipment, net		42,830			43,598
Goodwill		160,861			160,861
Core deposit and other intangible assets		2,857			3,640
Bank owned life insurance		51,985			50,938
Other assets		42,634			29,027
Total assets	$	2,919,291		$	3,021,025
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits (note 7)	$	2,089,904		$	2,142,702
FHLB borrowings (including repurchase agreements of $211,159 and $222,500 at March 31, 2011 and September 30, 2010, respectively) (note 8)		327,943			363,751
Borrowings senior unsecured note (FDIC insured) (note 8)		51,498			51,496
Mortgage escrow funds		14,286			8,198
Other liabilities		15,391			23,923
Total liabilities		2,499,022			2,590,070
Commitments and contingent liabilities (note 13)		—			—

STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)					—
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 38,072,942 and 38,262,288 shares outstanding at March 31, 2011 and September 30, 2010, respectively)		459			459
Additional paid-in capital		357,075			356,912
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(6,387	)		(6,637	)
Treasury stock, at cost (7,856,610 and 7,667,264 shares at March 31, 2011 and September 30, 2010, respectively)		(89,090	)		(87,336	)
Retained earnings		168,300			162,433
Accumulated other comprehensive income (loss), net of taxes		(10,088	)		5,124
Total stockholders’ equity		420,269			430,955
Total liabilities and stockholders’ equity	$	2,919,291		$	3,021,025

See accompanying notes to unaudited consolidated financial statements

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except share data)

	For the Three Months						For the Six Months
	Ended March 31,						Ended March 31,
	2011			2010			2011		2010
Interest and dividend income:
Loans	$	22,039		$	22,655		$	45,244	$	46,055
Taxable securities		3,531			4,724			7,061		9,476
Non-taxable securities		1,901			1,901			3,826		3,796
Other earning assets		332			347			732		718
Total interest and dividend income		27,803			29,627			56,863		60,045
Interest expense:
Deposits		1,585			2,201			3,227		4,991
Borrowings		3,707			4,492			7,941		9,234
Total interest expense		5,292			6,693			11,168		14,225
Net interest income		22,511			22,934			45,695		45,820
Provision for loan losses (note 4)		2,100			2,500			4,200		5,000
Net interest income after provision for loan losses		20,411			20,434			41,495		40,820
Non-interest income:
Deposit fees and service charges		2,643			2,744			5,410		5,737
Net gain on sale of securities		748			1,884			4,950		4,272
Title insurance fees		274			237			637		548
Bank owned life insurance		553			496			1,047		1,050
Net gain on sale of loans		310			117			852		400
Investment management fees		789			776			1,532		1,555
Fair value (loss) gain on interest rate cap		(2	)		(616	)		232		(236	)
Other		480			475			1,018		880
Total non-interest income		5,795			6,113			15,678		14,206
Non-interest expense:
Compensation and employee benefits (note 12)		11,183			10,824			22,411		21,088
Retirement benefit settlement charge		278			—			278		—
Stock-based compensation plans		296			581			575		1,033
Occupancy and office operations		3,757			3,537			7,392		6,863
Advertising and promotion		843			794			1,796		1,536
Professional fees		1,043			914			2,105		1,748
Data and check processing		691			577			1,333		1,127
Amortization of intangible assets		371			472			783		965
FDIC insurance and regulatory assessments		919			931			1,687		1,715
ATM/debit card expense		366			536			759		1,090
Other		2,044			2,007			3,941		3,902
Total non-interest expense		21,791			21,173			43,060		41,067
Income before income tax expense		4,415			5,374			14,113		13,959
Income tax expense		842			1,207			3,820		3,626
Net Income	$	3,573		$	4,167		$	10,293	$	10,333
Weighted average common shares:
Basic		37,496,395			38,188,191			37,524,627		38,384,180
Diluted		37,497,467			38,209,766			37,524,950		38,430,506
Earnings per common share (note 10)
Basic	$	0.10		$	0.11		$	0.27	$	0.27
Diluted	$	0.10		$	0.11		$	0.27	$	0.27

See accompanying notes to unaudited consolidated financial statements

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(In thousands, except share data)

																		Accumulated
	Number					Additional			Unallocated									Other			Total
	of			Common		Paid-In			ESOP			Treasury			Retained			Comprehensive			Stockholders’
	Shares			Stock		Capital			Shares			Stock			Earnings			Income (loss)			Equity
Balance at September 30, 2010		38,262,288		$	459	$	356,912		$	(6,637	)	$	(87,336	)	$	162,433		$	5,124		$	430,955
Net income		—			—		—			—			—			10,293			—			10,293
Other comprehensive loss		—			—		—			—			—			—			(15,212	)		(15,212	)
Total comprehensive loss																						(4,919	)
Deferred compensation transactions		—			—		19			—			—			—			—			19
Stock option transactions, net		—			—		278			—			—			—			—			278
ESOP shares allocated or committed to be released for allocation (24,966 shares)		—			—		(10	)		250			—			—			—			240
RRP Awards		19,000			—		(187	)		—			187			—			—			—
Vesting of RRP Awards		—			—		63			—			—			—			—			63
Purchase of treasury shares		(208,346	)		—		—			—			(1,941	)		—			—			(1,941	)
Cash dividends paid ($0.12 per common share)		—			—		—			—			—			(4,426	)		—			(4,426	)
Balance at March 31, 2011		38,072,942		$	459	$	357,075		$	(6,387	)	$	(89,090	)	$	168,300		$	(10,088	)	$	420,269

See accompanying notes to unaudited consolidated financial statements

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Six Months
	Ended March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	10,293		$	10,333
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		4,200			5,000
Write down of other real estate owned		100			7
Depreciation and amortization of premises and equipment		2,860			2,532
Amortization of intangibles		783			965
Net gain on sales of loans held for sale		(852	)		(400	)
Net realized gain on sale of securities available for sale		(4,950	)		(4,272	)
Fair value (income) loss on interest rate cap		(232	)		236
Loss on sales of fixed assets		—			54
Net amortization of premium on securities		4,714			2,108
Amortization of premiums on borrowings		(32	)		(165	)
Amortization of prepaid penalties on borrowings		338			—
ESOP and RRP expense		302			1,032
ESOP forfeitures		(3	)		(2	)
Retirement benefit settlement expense		278			—
Stock option compensation expense		278			4
Originations of loans held for sale		(37,819	)		(23,934	)
Proceeds from sales of loans held for sale		44,561			22,581
Increase in cash surrender value of bank owned life insurance		(1,047	)		(334	)
Deferred income tax expense		(1,225	)		(7,261	)
Net changes in accrued interest receivable and payable		(726	)		(1,241	)
Other adjustments (principally net changes in other assets and other liabilities)		(8,692	)		(2,666	)
Net cash provided by operating activities		13,129			4,577
Cash flows from investing activities
Purchases of available for sale securities		(357,238	)		(425,529	)
Purchases of held to maturity securities		(8,005	)		(15,619	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		131,361			130,954
Held to maturity		10,844			16,547
Proceeds from sales of securities available for sale and held to maturity		270,351			231,019
Loan originations		(261,632	)		(197,708	)
Loan principal payments		272,853			229,331
Purchase of interest rate derivative		—			(1,368	)
Purchase of FHLB stock		(23,239	)		(17,281	)
Redemption of FHLB stock		24,632			17,693
Purchases of premises and equipment		(2,092	)		(4,388	)
Proceeds from the sale of premises		—			48
Net cash (used) / provided by investing activities		57,835			(36,301	)

(Continued)

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Six Months
	Ended March 31,
	2011			2010
Cash flows from financing activities:
Net decrease in transaction, savings and money market deposits	$	(23,967	)	$	(62,116	)
Net decrease in time deposits		(28,831	)		(13,213	)
Net decrease in short-term borrowings		(62,340	)		(7,100	)
Gross repayments of long-term borrowings		(57,756	)		(2,056	)
Restructured debt		89,135			—
Payment of penalties on restructured borrowings		(5,151	)		—
Net increase in mortgage escrow funds		6,088			5,000
Treasury shares purchased		(1,941	)		(7,694	)
Stock option transactions		4			850
Other stock-based compensation transactions		19			42
Cash dividends paid		(4,426	)		(4,566	)
Net cash used in financing activities		(89,166	)		(90,853	)
Net decrease in cash and cash equivalents		(18,202	)		(122,577	)
Cash and cash equivalents at beginning of period		90,872			160,408
Cash and cash equivalents at end of period	$	72,670		$	37,831

Supplemental information:
Interest payments	$	11,618		$	15,899
Income tax payments		6,850			4,810
Net change in net unrealized losses recorded on securities available for sale		(26,550	)		(9,320	)
Change in deferred taxes on net unrealized losses on securities available for sale		10,782			3,783
Real estate acquired in settlement of loans		580			143

See accompanying notes to unaudited consolidated financial statements

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(In thousands, except share data)

	For the Three Months					For the Six Months
	Ended March 31,					Ended March 31,
	2011			2010		2011			2010

Net Income:	$	3,573		$	4,167	$	10,293		$	10,333
Other Comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale net of related tax expense (benefit) of $158, $1,878, $(8,772) and $(2,050)		229			2,744		(12,828	)		(2,998	)

Less:
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $304, $763, $2,010 and $1,733		444			1,121		2,940			2,539
		(215	)		1,623		(15,768	)		(5,537	)

Change in funded status of defined benefit plans, net of related income tax expense of $306, $147, $380 and $301		449			230		556			454
		234			1,853		(15,212	)		(5,083	)

Total Comprehensive income (loss)	$	3,807		$	6,020	$	(4,919	)	$	5,250

See accompanying notes to unaudited consolidated financial statements.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

1.	Basis of Presentation

The consolidated financial statements include the accounts of Provident New York Bancorp (“Provident Bancorp” or “the Company”), Hardenburgh Abstract Title Company, Inc., which provides title searches and insurance for residential and commercial real estate, Hudson Valley Investment Advisors, LLC (“HVIA”), a registered investment advisor, Provident Risk Management, (a captive insurance company), Provident Bank (“the Bank”), and the Bank’s wholly owned subsidiaries. These subsidiaries are (i) Provident Municipal Bank (“PMB”) which is a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market area, (ii) Provident REIT, Inc. and WSB Funding, Inc. which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii) Provest Services Corp. I, which has invested in a low-income housing partnership, (iv) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers, and (v) Companies which hold foreclosed properties acquired by the Bank. Intercompany transactions and balances are eliminated in consolidation.

The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and for letters of credit, on behalf of customers, which all are in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50.0 million during the first quarter of fiscal 2010. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the six months ended March 31, 2011 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2011. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2010.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan loss (see note 4), which reflects the application of a critical accounting policy.

Certain loans amounts from prior periods have been reclassified to conform to the current fiscal year presentation.

2.	Recent Accounting Standards, Not Yet Adopted

Accounting Standards Update (ASU)2011-02, Receivables (Topic 310)-A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring has been issued. The ASU clarifies which loan modifications constitute troubled debt restructurings and assists creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. This standard is effective for the Company July 1, 2011 and is not expected to have a material effect on the Company’s consolidated financial statements.

Loans

Major classifications of loans, excluding loans held for sale, are summarized below:

	March 31, 2011		September 30, 2010
Real estate - residential mortgage	$	411,014	$	434,900
Real estate - commercial mortgage		635,639		579,232
Acquisition, development & construction loans		205,293		231,258
Commercial business loans		205,490		217,927
Consumer loans, including home equity loans		227,391		238,224
Total	$	1,684,827	$	1,701,541

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

4.	Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio. Management’s evaluations, which are subject to periodic review by the Company’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions. Modifications to the methodology used in the allowance for loan losses evaluation may be necessary in the future based on economic and real estate market conditions, new information obtained regarding known problem loans, regulatory guidelines and examinations, the identification of additional problem loans, and other factors. Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for the periods indicated are summarized below:

	Three Months Ended March 31, 2011
	1- 4 Family Residential			Commercial Real Estate			Commercial Business			Acquisition Development & Construction			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	2,814		$	6,284		$	9,216		$	8,981		$	3,741		$	31,036
Charge-offs		(287	)		(659	)		(1,921	)		(125	)		(159	)		(3,151	)
Recoveries		1			—			98			—			46			145
Net Charge-offs		(286	)		(659	)		(1,823	)		(125	)		(113	)		(3,006	)
Provision for loan losses		1,011			651			745			(128	)		(179	)		2,100
Ending Balance	$	3,539		$	6,276		$	8,138		$	8,728		$	3,449		$	30,130
Net charge-offs to average loans outstanding (annualized)																	0.71	%

	Six Months Ended March 31, 2011
	1- 4 Family Residential			Commercial Real Estate			Commercial Business			Acquisition Development & Construction			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	2,587		$	5,913		$	8,677		$	10,231		$	3,435		$	30,843
Charge-offs		(440	)		(876	)		(3,280	)		(125	)		(665	)		(5,386	)
Recoveries		1			—			389			7			76			473
Net Charge-offs		(439	)		(876	)		(2,891	)		(118	)		(589	)		(4,913	)
Provision for loan losses		1,391			1,239			2,352			(1,385	)		603			4,200
Ending Balance		3,539			6,276			8,138			8,728			3,449			30,130
Net charge-offs to average loans outstanding (annualized)																	0.58	%
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,552		$	407		$	461		$	723		$	553		$	3,696
Collectively evaluated for impairment		1,987			5,869			7,677			8,005			2,896			26,434
Total ending allowance	$	3,539		$	6,276		$	8,138		$	8,728		$	3,449		$	30,130

Loans:

Loans as of March 31, 2011:
Individually evaluated for impairment	$	10,062		$	11,328		$	1,167		$	31,100		$	1,876		$	55,533
Collectively evaluated for impairment		400,952			624,311			204,323			174,193			225,515			1,629,294
Total ending loans balance	$	411,014		$	635,639		$	205,490		$	205,293		$	227,391		$	1,684,827

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

	Three Months Ended March 31, 2010
										Acquisition
	1- 4 Family			Commercial			Commercial			Development
	Residential			Real Estate			Business			& Construction			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	3,016		$	5,999		$	8,083		$	10,276		$	2,593		$	29,967
Charge-offs		(198	)		(30	)		(1,375	)		(250	)		(594	)		(2,447	)
Recoveries		—			1			144			251			28			424
Net Charge-offs		(198	)		(29	)		(1,231	)		1			(566	)		(2,023	)
Provision for loan losses		144			1,067			993			(270	)		566			2,500
Ending Balance	$	2,962		$	7,037		$	7,845		$	10,007		$	2,593		$	30,444
Net charge-offs to average loans outstanding (annualized)																	0.48	%

	Six Months Ended March 31, 2010
										Acquisition
	1- 4 Family			Commercial			Commercial			Development
	Residential			Real Estate			Business			& Construction			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	3,131		$	7,757		$	8,758		$	7,742		$	2,662		$	30,050
Charge-offs		(506	)		(227	)		(3,240	)		(455	)		(796	)		(5,224	)
Recoveries		—			15			287			261			55			618
Net Charge-offs		(506	)		(212	)		(2,953	)		(194	)		(741	)		(4,606	)
Provision for loan losses		337			(508	)		2,040			2,459			672			5,000
Ending Balance		2,962			7,037			7,845			10,007			2,593			30,444
Net charge-offs to average loans outstanding (annualized)																	0.55	%
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	536		$	986		$	356		$	979		$	219		$	3,076
Collectively evaluated for impairment		2,426			6,051			7,489			9,028			2,374			27,368
Total ending allowance	$	2,962		$	7,037		$	7,845		$	10,007		$	2,593		$	30,444

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans substantially consist of nonperforming loans and accruing and performing troubled debt restructured loans. The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2011:

					Allowance		YTD				Cash-basis
	Unpaid				for Loan		Average		Interest		Interest
	Principal		Recorded		Losses		Impaired		Income		Income
	Balance		Investment		Allocated		Loans		Recognized		Recognized
With no related allowance recorded:
Real estate - residential mortgage	$	2,790	$	2,984	$	—	$	2,978	$	53	$	4
Real estate - commercial mortgage		6,192		6,429		—		6,347		102		16
Acquisition, development and construction		27,839		28,239		—		35,107		403		501
Commercial business loans		434		434		—		578		1		1
Consumer loans		802		808		—		798		17		—
Subtotal		38,057		38,894		—		45,808		576		522

With an allowance recorded:
Real estate - residential mortgage		6,963		7,078		1,552		7,229		27		17
Real estate - commercial mortgage		4,770		4,899		407		5,005		27		2
Acquisition, development and construction		2,822		2,861		723		2,988		—		—
Commercial business loans		733		733		461		720		—		—
Consumer loans		1,068		1,068		553		1,144		—		—
Subtotal		16,356		16,639		3,696		17,086		54		19

Total	$	54,413	$	55,533	$	3,696	$	62,894	$	630	$	541

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2010:

					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
	Balance		Investment		Allocated
With no related allowance recorded:
Real estate - residential mortgage	$	2,896	$	2,930	$	—
Real estate - commercial mortgage		1,658		1,793		—
Acquisition, development and construction		4,732		4,760		—
Commercial business loans		458		458		—
Consumer loans		378		378		—
Subtotal		10,122		10,319		—

With an allowance recorded:
Real estate - residential mortgage		5,682		5,879		800
Real estate - commercial mortgage		6,974		7,203		399
Acquisition, development and construction		15,613		15,652		766
Commercial business loans		1,365		1,365		511
Consumer loans		1,663		1,664		570
Subtotal		31,297		31,763		3,046

Total	$	41,419	$	42,082	$	3,046

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Average impaired loans for the six months ended September 30, 2010 were $27,032. Listed below are the interest income recognized during impairment and cash received for interest during impairment for the six months ending March 31, 2011 and March 31, 2010, respectively.

	March 31,		March 31,
	2011		2010
Interest income recognized during impairment	$	630	$	988
Cash-basis interest income recognized		541		579

The following table sets forth the amounts and categories of the Company’s non-performing assets and troubled debt restructurings at the dates indicated.

	March 31, 2011					September 30, 2010

	90 days past due Still accruing		Non- Accrual			90 days past due Still accruing		Non- Accrual
Non-performing loans:
One- to four- family	$	2,536	$	7,106		$	1,953	$	6,080
Commercial real estate		3,984		7,906			2,971		6,886
Commercial business		180		655			—		1,376
Acquisition, development and construction loans		—		12,940			—		5,730
Consumer		712		1,158			503		1,341
Total non-performing loans	$	7,412	$	29,765		$	5,427	$	21,413

Real estate owned:
Land				2,620					2,029
Commercial real estate				2,425					1,507
One- to four-family				306					355
Total real estate owned				5,351					3,891

Total non-performing assets			$	42,528				$	30,731

Troubled Debt Restructurings still accruing and not included above			$	21,954				$	16,047

Ratios:
Non-performing loans to total loans				2.21	%				1.58	%
Non-performing assets to total assets				1.46	%				1.02	%
Allowance for loan losses to total non-performing loans				81	%				115	%
Allowance for loan losses to average loans				1.77	%				1.82	%

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Troubled Debt Restructurings:

Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items. Total troubled debt restructurings were $25,934 and $21,504 at March 31, 2011 and September 30, 2010, respectively. There were $3,980 and $5,457 in troubled debt restructurings included in non- performing loans at March 31, 2011 and September 30, 2010, respectively. Troubled debt restructurings still accruing and considered to be performing were $21,954 and $16,047 at March 31, 2011 and September 30, 2010, respectively. The Company has allocated $312 and $673 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2011 and September 30, 2010 respectively.

The Company has committed to lend additional amounts totaling up to $4,063 and $3,957 as of March 31, 2011 and September 30, 2010 to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans. This analysis is performed on a monthly basis on all criticized classified loans. The Company uses the following definitions of risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected these potential weaknesses may result in the deterioration of the repayment prospects for the loan or the institution’s credit position at some current future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of March 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of gross loans is as follows:

	Special
	Mention		Substandard		Doubtful
Real estate - residential mortgage	$	3,791	$	10,063	$	—
Real estate - commercial mortgage		10,914		33,439		—
Acquisition, development and construction		6,838		63,880		—
Commercial business loans		4,892		3,912		576
Consumer loans		615		2,057		—

Total	$	27,050	$	113,351	$	576

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table is made up of gross loans categorized as pass as of March 31, 2011:

	Current		30 - 59 days		60 - 89 days
	Loans		Delinquent		Delinquent
Real estate - residential mortgage	$	396,853	$	230	$	77
Real estate - commercial mortgage		591,286		—		—
Acquisition, development and construction		134,575		—		—
Commercial business loans		195,711		399		—
Consumer loans		223,331		1,018		370

Total	$	1,541,756	$	1,647	$	447

5.	Fair value measurements

Effective October 1, 2008, the Company adopted provisions of FASB Codification Topic 820: Fair Value Measurements and Disclosure. This topic establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:

LEVEL 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.

LEVEL 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

LEVEL 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that the market participants would use to value the asset or liability.

When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.

The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.

Investment securities available for sale

The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments are actively traded and therefore have been classified as Level 1 valuations (U.S. Treasuries and certain government sponsored agencies).

The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of market data information and compares them to dealer indicative bids from the Company’s external investment advisor. For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.

TABLE OF CONTENTS

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities. The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3 as of April 1, 2009 with a fair value of $9,534. As of March 31, 2011, these securities have an amortized cost of $5,850 and a fair value of $5,685. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of March 31, 2011. These securities have a weighted average coupon rate of 2.96%, a weighted average life of 5.06 years, a weighted average 1 month prepayment history of 10.07 years and a weighted average twelve month default rate of 3.21 CDR. One of the four securities is below investment grade and has an amortized cost of $2,135 and a fair value of $1,947 at March 31, 2011. The remaining three securities are rated at or above Aa3.

Derivatives

The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Commitments to sell real estate loans

The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair values of these commitments are not considered material.

A summary of assets and liabilities at March 31, 2011 measured at estimated fair value on a recurring basis were as follows:

	Fair Value
	Measurements
	at
	March 31,
	2011		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury	$	55,027	$	55,027	$	—	$	—
Federal agencies		369,378		—		369,378		—
Obligations of states and political subdivisions		184,712

STERLING BANCORP - FORM 10-Q - May 9, 2011

Attached files